The U.S. liquefied natural gas export market is burning bright, and Russia’s invasion of Ukraine makes it even more so. America’s export facilities are already largely booked. But Russia provides nearly 40% of Europe’s gas. Replacing even part of this would provide long-term security for firms like the $30 billion Cheniere Energy itching to build more.
America exported about 11.2 billion cubic feet (317 million cubic meters) of gas per day in January, according to the U.S. government. That’s about 12% of total U.S. gas supply, a huge jump considering exports only started in 2016. U.S. facilities are already operating near maximum capacity but investments already underway mean capacity should rise 25% this year.
It can be easily sold outside the United States. The Henry Hub gas price, which reflects prices stateside, is under $5 per million British thermal units. Liquefaction and shipping bring the total cost to around double that. Yet spot gas prices in Europe averaged nearly $29 this winter.
The energy transition has boosted Asian and European gas prices. To cope, power producers are increasingly locking up gas on long contracts. Cheniere’s current production is over 90% contracted until the middle of next decade.
Still, high gas prices overseas benefit U.S. LNG firms. Capacity not tied up in long-term contracts can be sold at higher prices. And completed projects can run full tilt. On Thursday Cheniere raised its 2022 adjusted EBITDA estimate by around 20%, to up to $7.5 billion.
The underlying opportunity is big. BP BP.L estimates worldwide LNG sales could reach 1,100 billion cubic meters in the mid-2030s, or over twice as much as today. A decision to wean off Russian gas offers another opportunity, a dynamic accelerated by the U.S. decision on Wednesday to sanction Nord Stream 2, a key new pipeline for Russian gas. Europe imported about 100 (oxfordenergy.org) billion cubic meters of LNG per year pre-pandemic, or roughly similar to current U.S. LNG export capacity. Russia supplied about twice as much, most via pipeline.
Cheniere started as an LNG import firm, but energy markets are volatile, and it nearly went bust when shale boomed. Green energy growth could eventually dent rising gas demand at some point. But for now, the future looks bright for LNG exporters.
CONTEXT NEWS
- The United States and Europe said they would impose severe sanctions on Russia after its military forces launched an attack on Ukraine on Feb. 24.
- On Feb. 23, Washington sanctioned the company building Russia’s Nord Stream 2 pipeline, putting it on a so-called Specially Designated Nationals list which stops people and companies from dealing with it at the risk of being sanctioned themselves.
- On Feb. 24 Cheniere Energy reported fourth-quarter results. The American LNG export firm raised its estimate for 2022 adjusted EBITDA to $7 billion to $7.5 billion. It had previously expected $5.8 billion to $6.3 billion.
Source: Reuters (By Robert Cyran, The author is a Reuters Breakingviews columnist. The opinions expressed are his own, Editing by Lauren Silva Laughlin and Sharon Lam)